Update 5:08 p.m.: Microsoft confirmed that it will issue $3.75 billion in long-term debt and gave more details on the breakdown.

They will offer $2 billion of 2.95 percent notes due June 1, 2014; $1 billion of 4.2 percent notes due June 1, 2019; and $750 million of 5.2 percent notes due June 1, 2039.

Update 1:11 p.m.: Microsoft's plans to issue debt would be the company's first long-term debt offering. Back in September, the board of directors authorized the company to issue $6 billion in debt. Here is our coverage from that announcement.

The company then issued $2 billion in commercial paper, short-term debt for corporate purposes and to purchase stock. That leaves $4 billion in debt the company could still seek. Bloomberg reported the company plans to offer $3.75 billion in long-term debt, citing an unnamed source.

Earlier: In a regulatory filed today, Microsoft says it plans to sell debt to raise money. The company will offer 5-, 10- and 30- year debt. The filing does not specify how much money the software company plans to raise with the debt offering, or when it will make the debt offering.

The proceeds will be used for working capital, capital expenditures, repurchases of stock and acquisitions, the company said in its filing.

We will be liveblogging Microsoft's third-quarter earnings call tomorrow at 2:30 p.m. so come back, click in and share your thoughts on the tech giant's report card.

Here's what to look for in the earnings call. Analysts are expecting a weak quarter as the general state of the economy has pressured businesses to pull back on IT spending.

It did not help that Microsoft declined to provide any financial guidance for this quarter in its last call, when it announced it planned to cut 5,000 jobs between then and 2010.

First Call has put analyst profit estimates at about 39 cents per share, or $14.2 billion, compared with 47 cents per share in the same quarter last year.

Sid Parakh, analyst at McAdams Wright Ragen, is expecting earnings to come in below that. "We cited weakness in enterprise spending as well as the factor of netbooks that you might want to consider," he said. Microsoft has been selling a version of Windows XP for the low-cost laptops, but the company makes less than what it would for a copy of Windows installed on a desktop PC.

Parakh has done a round of checks and believes the company could be preparing for another round of deeper cuts. He recommends paying close attention any time someone says "enterprise spending," "netbooks" and "operating expenses."

Matt Rosoff, an analyst at Directions on Microsoft, said he also expects a "pretty down quarter." He's seen evidence that the company is offering special deals on its enterprise software such as SQL, Exchange and Sharepoint, and offering incentives to large companies to renew their agreements. "Typically at Microsoft they don't offer a lot of deals," he said.

Still, Rosoff said most financial analysts have already accounted for lowered spending: "I don't know that Microsoft is going to disappoint them by missing."

We will also be listening for anything related to search, given all the talk about a Microsoft-Yahoo search partnership in the works.

We doubt that CEO Steve Ballmer and CFO Chris Lidell will drop any f-bombs, as Yahoo CEO Carol Bartz did on the company's earnings call Tuesday.

For a few years now, Microsoft's mantra has been "software plus services," the idea that customers can chose how they buy and consume the company's products. For example, a business may choose whether to buy Exchange for e-mail and run it on its own servers or have Microsoft host Exchange in its data centers and provide it as a service for a per user, per month subscription. For many products, there are also third-party partner companies that offer similar hosting models for Microsoft's business applications. Last week, I talked with three Microsoft executives about which among these options looks the best to Microsoft from a financial perspective, and how the online businesses are evolving.

Microsoft announced this afternoon that Maria Klawe, president of Harvey Mudd College and a Ph.D, mathematician and computer scientist, is the 10th member of the company's board of directors. The board also declared a quarterly dividend of 13 cents per share, up from 11 cents in the fiscal third quarter of 2008.

With Microsoft's Redmond campus largely emptied out for the winter holidays, CEO Steve Ballmer crunched the numbers on the proper level of spending for his company against the current economic climate, which he has repeatedly referred to as a "reset" rather than just a recession. Ballmer said his own estimates for the weakness and duration of the downturn tend to be more severe than those of other business leaders he meets.

With that in mind, he settled on $27.5 billion of operating expenses -- a level the company aims to hold relatively steady through the current fiscal year, which ends June 30, and during its 2010 fiscal year. Ballmer made clear to financial analysts meeting in New York this morning for the company's annual strategic update that cutting back even more significantly -- say to $20 billion -- would be "imprudent."

"I think this is right," Ballmer said.

That should give some comfort to those wondering if the modest layoffs Microsoft announced last month were the beginning of a more significant reduction. Wall Street analysts and investors are pressuring companies in every industry to continue cutting costs as sales and profits slow dramatically.

The strategic update call just came to an end. Ballmer gave a detailed look at seven major business areas for the company. Check back here later this morning for more details.

Update, 7:50 a.m.: As he told Congressional Democrats earlier this month, Ballmer said Microsoft's corporate strategists have been evaluating past downturns -- particularly those driven by "deleveraging." The team read company annual reports from 1927 to 1938 to determine who did a good job managing through the Great Depression. "RCA, God rest them in peace, became our role model," Ballmer said. The company was able to dominate the television business because it continued to invest during bad times, he said.

With Microsoft's fiscal second-quarter earnings a week away, analysts are chiming in with their expectations. In a report to investors this morning, Sid Parakh of McAdams Wright Ragen writes: "[C]hecks indicate that Microsoft is likely to reduce headcount in the near-term to the tune of 6,000 - 8,000 employees, or 6% - 8% of its ~95,000 employee workforce. Underperforming employees are the most likely targets in the expected reorganization."

That follows a Wall Street Journal report that Microsoft is "seriously exploring significant work force reductions" to be announced perhaps during earnings, and our story today, reporting that at least some Microsoft employees are bracing for a reorganization announcement today.

Analysts at Morgan Stanley cut their price target on Microsoft shares to $24 and also lowered its estimates. Microsoft shares were down 88 cents, 4.3 percent, to $19.73 in mid-afternoon trading on the Nasdaq.

Meanwhile, Ina Fried at CNET interviews Bob Muglia, senior vice president of the Microsoft Server and Tools Division, who said "IT budgets are cramped. It's not like IT is going to dramatically contract, but it is certainly slowing pretty dramatically."

Microsoft will pay a 13 cent per share dividend March 12 to shareholders of record as of Feb. 19, the company announced last night. The fiscal third quarter dividend is up from 11 cents per share a year ago.

In September, Microsoft announced its first-ever program to issue corporate debt, to the tune of $6 billion. The company's first move was to issue commercial paper, corporate debt that can be bought and sold and is typically issued for terms of three months or less.

Where were you on March 17, 1998? Microsoft's stock was at $18.08 when the closing bell rang on that date. That's the last time it was lower than it is today. Shares closed the trading day today -- adjusted for splits, so the numbers are comparable -- at $18.29, down $1.33, 6.8 percent on the day.

Note: This post originally (and wrongly) indicated that the last time Microsoft shares were this low was Jan. 30, 1998.

Microsoft shares were trading down $1.50, about 7.2 percent, to $18.80 at 1:06 p.m. Eastern Time today, an intra-day low not seen since Jan. 30, 1998, when the company's stock hit $18.45 before closing at $18.65.

(Update, 1 p.m.: Can you say volatility? Microsoft climbed into positive territory late in the day. At 3:57 p.m. Eastern, the stock was up 76 cents, 3.7 percent, to $21.04.

Also, see this post to read why one financial analyst expects PC sales growth to slow to a trickle in the next 7 and a half months, and the impact that could have on Microsoft revenue.)

LOS ANGELES -- Bob Muglia, senior vice president of Microsoft's server and tools business, shared his expectations of the impact Microsoft's new services platform will have on company profit margins, where he sees opportunities for collaboration with Amazon.com -- the company's biggest cloud competitor not named Google -- and more in an interview earlier today.

Check out these edited excerpts of our conversation. I've put the particularly interesting bits in bold for easier scanning.

Five years ago, Microsoft could not have trotted out examples of its wide-ranging anti-piracy efforts from 49 countries, as it's doing Tuesday. The announcements are a testament to the company's effort to build expertise and partnerships in a multi-front battle against piracy. But five years ago, global software piracy was less pervasive and less financially damaging than it is now.

Analyst firm Gartner reported third-quarter PC shipments grew 15 percent year-over-year to 80.6 million units, lead by strength in the newer mini-notebook segment. But analysts continue their skeptical view of the tech sector -- which begins reporting September quarter earnings this week -- in anticipation of tighter IT budgets.

Markets are rallying this morning (major indexes up around 4 percent in early trading) in response to efforts by governments around the world to guarantee lending and calm last week's financial turmoil. But even if this is the beginning of the end of the beginning, enterprise software companies including Microsoft are in for a painful hangover, according to analysts at Friedman Billings Ramsey.

Mithras Capital, which owns 0.14 percent of Yahoo, has floated a proposal for Microsoft to buy the floundering Internet giant for $22 a share, according to reports from Reuters and Bloomberg. That would be a 74 percent premium to Yahoo's Thursday closing price of $12.65, but still significantly below the $31-a-share stock and cash offer Microsoft made for the company Feb. 1.

American Technology Review analyst Rob Sanderson issued a research note today cutting his price target on Yahoo from $33 a share to $22 a share. Sanderson said that combined with Microsoft's continued struggles in its online services business could lead the software giant to bid for Yahoo again. Reuters reports that Bank of America analysts also cut their target for Yahoo shares from $24 to $16.

Yahoo shares were down 5.5 percent, to the $13.70s in mid-day trading on the Nasdaq.

Silicon Alley Insider has an excerpt from hedge-fund manager David Einhorn's letter to investors for the third quarter, in which he explains his decision to sell his position in Microsoft. Meanwhile, the company's shares dipped 6.7 percent today -- along with the broader market -- to close at $23.23, their lowest point since July 20, 2006.

This is the last day of Microsoft's fiscal 2009 first quarter. While Silicon Valley tech companies were telegraphing layoffs last week to trim expenses and tidy up the bottom line as the quarter came to a close, not so at Microsoft. (Check back Wednesday for an update on employment growth at the company.)

Microsoft will announce its fiscal first quarter earnings on Thursday, Oct. 23, after the markets close.

I'm out of the office this week, so posting will be lighter than normal. But this site will not be dormant, so keep checking in. I have prepared a series of posts updating stories from the last year and pointing out upcoming events. My editor, Mark Watanabe, will also contribute links to interesting stories that pop this week and items from my colleague Brier Dudley.

For starters: Microsoft has filed each of its last four proxy statements between Sept. 20 and Oct. 4, so the annual SEC filing should arrive any day this week. (You can check for it here.)

Microsoft executives will share in a new compensation plan worth up to $238 million $94.2 million, based on the company's forecast for fiscal year 2009 revenue operating income.

The new plan, announced this afternoon in a filing with the SEC, replaces the existing annual cash bonus and equity award programs for the company's executive officers beginning with fiscal year 2009.

More details, from the filing: The Compensation Committee of Microsoft's board of directors can establish award programs linked to "performance periods" of "one or more fiscal years." Participating executive officers get a fixed share of an "incentive pool." For fiscal year 2009, which began July 1, "awards will be granted from an incentive pool with maximum funding of 0.35 percent of Microsoft's fiscal year 2009 corporate operating income."

Based on Microsoft's forecasts for fiscal year 2009 revenue, that pool would have between $235.6 million and $238.4 million, by my calculations. Based on Microsoft's forecasts for fiscal year 2009 operating income, that pool would have between $92.1 million and $94.2 million.

More details:

"Awards may be further reduced or eliminated in the discretion of the Compensation Committee (or in the discretion of the Board of directors, for awards to the Company's chief executive officer, Steven A. Ballmer). The Plan specifies a maximum amount of $20,000,000 that may be paid under the Plan to a participating executive officer for one or more performance periods that end during a fiscal year. Award amounts under the Plan may be made in either or both stock awards issued under the Microsoft Corporation 2001 Stock Plan and cash. Vesting of stock awards will be determined by the Compensation Committee. The 2001 Stock Plan generally requires that stock awards vest over at least a three-year period."

I'm checking on how many executives this applies to. A past Microsoft executive compensation plan, outlined in 2006, went to the most senior 1.3 percent of the company, or about 900 people. The award under that plan was 37 million shares of company stock over three years.

(Update, 6:20 p.m.: The new plan applies to the company's eleven most senior employees:

-- Steve Ballmer, chief executive officer, (although given his large ownership of Microsoft stock, Ballmer does not receive equity compensation).

At the same time, Microsoft amended its corporate bylaws, primarily relating "to the requirements for advance notice and additional information that a shareholder must provide when making a director nomination or proposal at the Company's annual meeting of shareholders."

I'll update later with more on the new compensation plan and bylaws changes.

The company also increased the size of its dividend by 18 percent to 13 cents a share, payable Dec. 11 to shareholders of record Nov. 20.

Finally, Microsoft's board of directors authorized the company to buyback $40 billion of its own stock in the next five years.

Many on Wall Street were looking for Microsoft's board of directors to pull some of these financial levers to help juice the stock. The company's shares were up about $1.09, more than 4.3 percent, in trading Monday to $26.25.

Forbes published its annual list of the 400 richest Americans yesterday. Microsoft co-founder Bill Gates is on top with an estimated $57 billion fortune. Forbes notes that Gates has more than half his fortune outside of Microsoft stock and that his pile has declined 5 percent in the last 12 months. Another interesting note: "Inflation-adjusted net worth would top $90 billion if he hadn't given away any cash."

Ten senior Microsoft executives received stock awards last week, which were reported in filings with the Securities and Exchange Commission yesterday. The awards "were the result of the performance review of our executive officers for their fiscal year 2008 equity compensation," according to a spokesman. They vest 25 percent at a time on Aug. 31, 2008, and each Aug. 31 thereafter.

Here are the execs, their awards, their total Microsoft shares, and the value of their total shares at Thursday's closing price:

Microsoft veep Ted Kummert will make a "significant" announcement relating to the company's Data Platform and Storage Division at 10 a.m., a spokesman said. We'll be covering the teleconference. (Update, 10:02 a.m.: The "significant" news is that Microsoft has released SQL Server 2008, its database and business intelligence server software.)

Meanwhile, Bloomberg is quoting top-rated software analyst Heather Bellini, who thinks Microsoft will rev up its share buyback engine in the coming months.

Microsoft Chief Financial Officer Chris Liddell just took the financial analysts here through another re-hash of Yahoo pursuit. He said the value of Yahoo has eroded since Microsoft made its acquisition offer in January. Going forward, he said, the chances of Microsoft buying all of Yahoo are so small as to be "essentially negligible." A search-only transaction is still a possibility.

Microsoft's stock has not recovered from the tumble it took in after-hours trading Thursday. At 10:15 this morning, shares were down $2.06, 7.5 percent lower than the $27.52 closing price Thursday before the company announced earnings that missed Wall Street forecasts by a penny per share, and lowered its fiscal 2009 profit forecast. Here's what analysts had to say about the results in notes to investors this morning:

From the company's just-released fiscal fourth-quarter earnings announcement: Revenue was $15.84 billion for the quarter ended June 30, 2008, up 18 percent; operating income and diluted earnings per share were $5.68 billion and 46 cents. The average estimate of Wall Street analysts was for earnings of 47 cents a share.

Update, 1:31 p.m.: Microsoft is also tumbling in the after-hours market on the earnings miss. Its shares finished the regular session at $27.52, but were trading around $25.95, down 6 percent, in the after-hours market.

Update, 1:43 p.m.: Microsoft lowered its income and earnings outlook for the current fiscal year, which began July 1. Now the company expects full-year operating income of between $26.3 billion to $26.9 billion compared with a range of $26.7 billion to $27.4 billion given April 24.

Earnings per share, management says, will come in between $2.12 to $2.18 for the full year, down a penny from April 24 update of $2.13 to $2.19.

CFO Chris Liddell will surely offer an explanation for the move, which isn't entirely surprising given the tighter IT spending environment. Still, this is the first sign that Microsoft's business has been impacted.

Update, 2:23 p.m.: After speaking just now with Colleen Healy, Microsoft's investor relations head, it turns out the reduced guidance is not the result of an expected tightening IT budget. Microsoft instead is upping its spending on the Online Services Business, which just turned in a $1.2 billion operating loss for the fiscal year, more than twice the loss of the prior year.

Since the April update, "We have made a conscious decision to increase our spending, in particular to invest in our Online Services Business," Healy said.

Specifically, the company wants to drive increased awareness and search traffic to its Live Search engine; continue building its advertising platform; and enhance its MSN portal, Healy said. In total, that will come in at about $500 million in operating expense increases.

Revenue growth forecasts for 2009 are actually up slightly, indicating the company is not expecting any softening in sales. "We're feeling good about fiscal year 09 and that does give us the confidence to invest in the business," she said.

Also, in the current fiscal fourth quarter, Microsoft saw operating expenses increase by $500 million, in part because revenue was higher than expected because of increased consulting business and Xbox 360 sales, which have higher costs associated.

The other half of that op ex increase -- about $250 million -- "was to do things like get tenacious on taking advantage of the economic climate out there to attract top talent," Healy said.

Update, 2:37 p.m.: The Entertainment and Devices Division met its goal of profitability -- operating income of $426 million for the full fiscal year, a first. But the company stumbled to the finish with a $188 million loss in the current quarter. Healy chalked up the loss to investments in the division.

"We did continue to invest in things like our mobility efforts and other areas in that business, which, we think, is going to fuel growth in the future," she said. "Our goal was sustained profitability on a yearly basis, and that doesn't mean that quarter-by-quarter, it's going to be in the black. It means that our goal is that on a yearly basis, we expect to be in the black, which continues for fiscal year 09."

The company noted strong Xbox 360 sales in the quarter, and revenue growth of 36.6 percent. Asked if the company loses money on each console, Healy said the company's goal is for the console to break-even in the long run, excluding the $1.1 billion charge the company took in the fourth quarter last year to expand warranty coverage on its overheating Xbox 360s.

Microsoft's top Internet rival, Google, saw a slight, sequential decline in profit in the second quarter, posting non-GAAP net income of $1.47 billion, compared with $1.54 billion in the first quarter of 2008. Non-GAAP earnings per share were $4.63, missing the average analyst estimate of $4.74 a share. The company's stock was tumbling in the after-hours market.

Microsoft reports earnings for the fiscal 2008 fourth quarter and full year Thursday. It will also sharpen its forecast for the current quarter and fiscal year against a backdrop of grim developments in the broader economy.

At the same time, the ongoing pursuit of Yahoo could be coming to a climax in two weeks at Yahoo's shareholder meeting. But the drama that has unfolded in the last five and a half months has put an anchor on Microsoft's stock and called the company's online strategy into question.

Goldman Sachs is out this morning with an extensive review of the software industry as second-quarter earnings begin rolling in next week. Broadly, the analysts see chief information officers -- CIOs -- tightening their belts.

Mary Jo Foley explores how Microsoft employee morale has suffered since the company began pursuing its acquisition of Yahoo. She says there's a "real and prevailing sentiment among many in the Microsoft ranks" that the company should walk from the deal, no matter the price.

I've heard from a few at the company on this subject, and their thinking tends to follow these lines. But I'd love to hear from more employees.

Microsoft's core operating system business saw year-over-year revenue and operating income declines in the latest quarter. Likewise, the Online Services Business -- where it competes most directly with Google, the impetus for the Yahoo acquisition -- also saw a slight decline.

Wall Street analysts had been expecting earnings per share of 44 cents. Microsoft just announced earnings of 47 cents a share. The company's third quarter revenue of $14.45 billion was right in the middle of the range it forecast in January.

Those tracking the price Microsoft has offered for Yahoo know that it fluctuates every day because half of the compensation to Yahoo shareholders would be Microsoft stock. If Microsoft continues its pattern of better-than-expected earnings releases later today, its stock, and, in turn, the compensation to Yahoo's shareholders, could jump.

Readers more familiar with Microsoft's Employee Stock Purchase Program than I am pointed out a better way to evaluate the data the company filed with the Securities and Exchange Commission earlier this week. I wrote that Microsoft employees, per capita, bought fewer shares of stock through the program in each of the past two years.

Today is one of four days each year that Microsoft employees can buy company stock at 90 percent of its fair-market value as part of the company's employee stock purchase plan. A report filed today on that plan shows that Microsofties have purchased fewer shares of company stock through the program per capita in each of the past two years.
(Update, Wednesday afternoon:Note this post responding to readers who suggested a better way to evaluate the figures reported here.)

Yahoo optimistic investor presentation today included this slide, which shows that the company's forecasts for revenue and cash flow growth are much higher than those of financial analysts.

Yahoo this morning publicized an optimistic investor presentation that spells out its plans to "roughly double operating cash flow over the next three years." The plan was shown to the company's board of directors in December 2007 and is being released now to support the board's determination that Microsoft's acquisition offer of $44.6 billion "substantially undervalues Yahoo."

In one paper, he looked at how cash-rich companies fare when they go shopping (not all that well). In another, he researched how directors at a company targeted for acquisition balance shareholder interests with their own.

Cash-rich acquirers
Microsoft, with more than $21 billion in cash and short-term investments on its balance sheet on Dec. 31, is certainly cash rich, though less so than it was just a few years ago, thanks to stock repurchases and dividends.

Here's how Harford described his research, which looked at a broad set of companies and was published in the Journal of Finance, December 1999: "When managers have a lot of cash available to them, they don't have to go out and raise the capital and so they're not getting vetted at that point. They're not really being monitored by the capital market.

"You could very broadly paraphrase this as [cash] sort of burning a hole in their pocket," he said.

Companies in that situation, he found, are less careful about their acquisition targets and "their own natural optimism doesn't get put in check." As a result, "cash-rich firms are more active as acquirers and the acquisitions they make tend to be worse than average." He also found, quoting now from the abstract of his paper, that the targets of cash-rich acquirers tend not to attract other bidders and "mergers in which the bidder is cash-rich are followed by abnormal declines in operating performance."

Microsoft's proposal to buy Yahoo includes a combination of stock and cash from the balance sheet, as well as outside financing -- a departure from the company's norm. I asked Harford if that, plus the added scrutiny because the deal is particularly large and high-profile, means that it wouldn't fit the pattern described in his research.

"It certainly mitigates it in these extremely high-profile [cases]. This particular case actually does fit the pattern in the sense that they were cash rich and the market reacted pretty negatively to the offer" -- Microsoft shares are down about 13 percent since the proposal was made public Feb. 1 -- "But that doesn't mean that's what's going on. There's so much that goes into the market's initial reaction to a bid that you really need a large sample to kind of say what the trends are."

Directors at acquisition targets
Harford points out, in a paper published in the Journal of Financial Economics, July 2003, that company directors, like most people, have a natural drive for self preservation. Voting to accept an acquisition proposal could mean no more sitting in the big leather chairs.

"When a target director votes to accept a bid, he or she is basically voting him or herself out of a job," Harford said. The acquiring company usually brings only one or two key people from the target on to its board. "... A lot these [directors] are retired executives and they maybe have plenty of money, but they value the prestige of being involved in something like that."

They're supposed to be acting with the shareholders' best interests in mind, but they do face some conflict of interest in considering an acquisition, he said.

Harford's research found that if directors do the right thing -- or the thing that is perceived to be in the best interest of shareholders -- they will be rewarded in the long run. "If your company has been doing badly and you accept a takeover bid, than you will be asked on to other boards," he said.

This typically holds true for directors at firms that have been doing poorly under the current management and board, he said. The converse is also true, his research showed.

So if Yahoo's board ultimately rejects Microsoft's offer?

"Basically, they would be less likely to be invited onto other boards in the future," he said.

Want to easily compare the share of revenue coming from Microsoft's various sales channels? Interested in how many premium copies of Windows Vista Microsoft is selling to consumers and businesses? Are you a fan of XBRL (eXtensible business reporting language)?

Then Microsoft has a site for you. The company just launched an extension of its regular investor relations site called Investor Central. On a welcome page, Microsoft CFO Chris Liddell says it is "intended to help investors from large institutions to retail shareholders better understand Microsoft's business strategies and our financial results.

"It takes advantage of new technologies (like XBRL). As you navigate around the site, you'll see that you can click on many of the line items in the financial statements for additional information, and you can move back and forth easily between views."

I played around with it a bit and it is pretty helpful, even if it is still a work in progress, as a spokeswoman noted. Instead of trolling through the 10-Qs, most of what I'm interested in is in one place.

Microsoft continues to rack up online advertising deals, and seems to be doing particularly well with purveyors of financial information.

The company today announced a deal with The Wall Street Journal Digital Network to become the "exclusive third-party provider of contextual and paid search advertising for its network of sites, including The Wall Street Journal Online, Barrons.com, MarketWatch.com, AllThingsD.com and others." The deal begins in February. No other terms were disclosed.

The network has 20 million unique monthly visitors.

Brian McAndrews, the former CEO of aQuantive who now heads Microsoft's new Advertiser and Publisher Sollutions Group, boasted that the win makes Microsoft's extended advertising network "the premier destination for advertisers interested in reaching financially minded users." The company has announced other deals in recent months with CNBC and Edgar Online (third item).

Microsoft has just announced its earnings for the quarter ended Dec. 31. Revenue was nearly $16.4 billion, up 30 percent, and earnings per share were 50 cents, better by 4 cents than the high end of management forecasts and the Wall Street consensus estimate. The revenue growth figure is a bit misleading because last fiscal year the company deferred $1.6 billion in revenue to help spur demand for PCs as Vista's release was delayed past the 2006 holidays. Absent the deferral, this quarter's revenue growth is 15 percent.

Update, 2:30 p.m.: I just spoke with Microsoft CFO Chris Liddell. Here's some of what he had to say.

Is Microsoft getting even more attention this quarter because of the turmoil in the larger economy?

"There certainly seems to be a lot of focus. I think that's clearly because of the number of markets that we're in. We're not only a bellwether in terms of our size, I think we're a bellwether in terms of the breadth as well, so depending on the division you look at you get a pretty good look at what's happening on the business side vs. consumer side and, the market vs. international markets, so there's plenty of interest."

Microsoft raised its full-year forecasts for fiscal 2008. Revenue is now projected to be $59.9 billion to $60.5 billion, up from the Oct. 25 forecast of $58.8 billion to $59.7 billion, an increase of 1.3 percent on the high end. Earnings per share should now come in between $1.85 to $1.88, up nearly 3.9 percent from the high end of the range of $1.78 to $1.81 given in October. How does Microsoft have the confidence to raise its guidance in the face of a U.S. recession?

"We're just very happy with the position we have in the markets that we have. Clearly, we, like everyone else, would be impacted if we did see an economic downturn, but relatively speaking we still feel very good about the products we're in, the market positions we're in and we're helped for example by over 60 percent of our sales are now to customers outside the U.S. So, whilst there's a lot of focus on what's happening inside the U.S., at the growth rates we are seeing in non-U.S. mature markets and emerging markets are very healthy." (The former grew more than 20 percent in the first half and the latter, while starting on a smaller base, grew more than 30 percent. Emphasis mine.)

The raised guidance results in part from the company's performance through the first six months of the fiscal year, and in part from the outlook for the second half of the year, Liddell said.

In addition to strength in a broad spread of geographical markets, Liddell said Microsoft's bread and butter -- PC operating systems -- were helped by a strong holiday quarter of PC sales. "PC demand in this second quarter was 14 or 15 percent. Clearly that's a very healthy number," he said.

After taking a beating with the rest of the blue chips this week, Microsoft's stock gained $1.32, or 4.1 percent, to close regular trading at $33.25, on higher volume than usual. In early after-hours trading, the stock was up $1.53, 4.60 percent, to $34.78 as of 5:21 p.m. ET.

As investors rub their whip-lashed necks, Microsoft is preparing to report on its fiscal second quarter -- the three months ended Dec. 31 -- on Thursday after the bell. A link to a live Webcast of the company's earnings conference call, beginning at 2:30 p.m., will be posted here.

Analysts are looking for a strong quarter, but as has been the case with other big tech reports in recent weeks, the company's outlook will probably get more attention than its Q2 numbers.

Thomson Financial polled 30 analysts on Jan. 15. The consensus estimate is earnings of 46 cents a share, which would be at the high end of the range Microsoft issued at its last quarterly report, which, you'll recall, blew the doors off.

Goldman Sachs analyst Sara Friar last week put Microsoft back on her "Americas Conviction Buy List," She said she views the stock as "defensive in a tough macro environment," pointing to the company's "broad international exposure with derivative currency benefit."

In another note Tuesday, however, Friar and other Goldman analysts expressed concern about the broader software sector in light of the economic downturn, noting that "a slowing U.S. economy may spread overseas, removing a key tailwind for the group."

Microsoft will try to keep up with the blistering pace it set during the fiscal first quarter of 2008 when it reports earnings for the second quarter on Thursday, Jan. 24, after the markets closed.

Today, the stock started off up slightly after Goldman Sachs analyst Sara Friar added it back to the financial giant's "Americas Conviction Buy List." Friar is bullish on the upcoming earnings announcement and the late February launch of Windows Server 2008 and associated products.

Microsoft should also benefit from solid PC sales growth in the quarter, which hit 15.5 percent according data released yesterday by IDC's Worldwide Quarterly PC Tracker. Gartner's growth estimate was slightly lower for the quarter: 13.1 percent. A huge chunk of Microsoft's Windows revenue comes from sales of software pre-installed on new PCs, so the PC growth rate dictates a large part of the company's financial results. But at least one PC tracker sees a slowdown ahead.

Robbie Bach, president of Microsoft's Entertainment and Devices Division, will chat with financial analysts on Monday at 2 p.m. the Consumer Electronics Show in Las Vegas, Microsoft said this afternoon. Bach played a major part in Bill Gates annual keynote at the show last year and I expect him to do so again, especially given that this will be Bill Gates' last, for the foreseeable future, and Bach said as much in this interview in October (relevant passage is at the very bottom). We will be covering the keynote from Las Vegas. A Webcast of Bach's analyst presentation will be available from the company's investor relations site.

A former Microsoft executive who led the launch of Xbox and the co-founders of both Classmates.com and Jobster.com have all joined a local non-profit dedicated to helping poor people gain access to credit.

They're part of a wave of experienced technology people leaving the business world to apply their skills to problems of inequality.

Their business experience is valued at Redmond-based Unitus, which looks at microfinance, or providing tiny loans and other services to working poor, as "an up-and-coming business sector, not a charity," in the words of its spokesman. Unitus also operates a separate, for-profit investment fund.

That for-profit approach is somewhat controversial and has its share of critics. But in microfinance the line between doing good and making money is blurring.

Unitus reaches more than 2 million people now with loans, insurance and other services that would not be available to them through traditional banks. Like an aggressive tech startup, it plans to expand to a million more by the end of the year.

Xbox veteran Ed Bland, who was a general manager in Microsoft's Entertainment and Devices Division, left to join Unitus as chief operating officer.

SOURCE: Unitus

Ed Bland's job is anything but.

Other techies that have recently joined Unitus are Derek Streat, co-founder of Classmates.com and now Unitus VP of microfinance solutions; Jobster.com co-founder Jonathan Weinstein, now Unitus director of product development; former Microsoft and BEA employee Diana Reid, now Unitus VP of donor and investor relations; and RealNetworks and Microsoft veteran Sandra Winters, who is Unitus director of strategic alliances.

Note: Please keep the comments polite and refrain from any personal attacks.

Following on my post last week about hybrid Web sites that combine social networking and financial services, a lively debate arose about rating financial advisers online. It seems timely to raise these issues, considering the turmoil in markets recently and the subprime lending debacle. Investors can certainly benefit from better information, and the web makes sharing it much easier.

One concerned reader made these criticisms about the site and about financial advisors in general:

"Clients of 'financial advisors' that are usually brokers/salesmen simply do not have the knowledge to rate those brokers. I have helped many advised clients and NONE of them understood the fees they were paying, or how their returns compared to the indexes. They had no idea that their broker participated in revenue sharing, or that they were being charged 12b-1 fees. Some thought they paid no fees at all! None knew what their bill for financial costs came to, or the effect of those costs over time. They had all been manipulated into trusting their 'advisor'... blindly.

"The questions asked on financialjoe are very superficial and will NOT give a true rating for advisors. Not even close.

"What needs to happen is that investors need to be educated on what their financial advisor will never tell them. For example:

" 'the BCT study found that the raw returns of equally weighted mutual funds (net of all expenses) for 1996 to 2002 were 6.626% for the investors working on their own and were 2.924% for funds provided by advisors.

" 'In other words, the public working on its own did more than 100% better than financial advisors when it came to selecting equity mutual funds. After factoring in inflation and taxes, clients of financial advisors lost money and lost purchasing power.'

"If someone is calling themself a 'financial advisor', they should advise, not sell. It's almost impossible to do both honestly I have learned.

And financialjoe.com's Shawn Tierney responds:

"To categorize clients who use a financial advisor, essentially saying that they're all too ignorant to rate their brokers, is a gross misstatement! There are millions of doctors, attorneys, business owners, and other professionals that use financial advisors; are they ignorant? There are also tens of thousands of financial advisors who work for all the major wire-houses, banks, and other firms that hold CFP's, CFA's, and Masters of Economics degrees; are they not qualified to advise?

"The majority of investors cannot even explain the functionality of a mutual fund, let alone the fee structure, and most don't want to learn because of the complexity involved. Study after study has shown that investors fail to become educated due to the complexity of the investments, and the level of vocabulary Wall Street injects.

"During our focus testing, financialjoe.com used various levels of vocabulary in the questions. We found the more in-depth the question, the less participation, and completion of the questionnaire.

f"inancialjoe.com's focus is participation. Through participation will come knowledge by way of experienced wisdom.

"For example:

"Through financialjoe.com investors rate their advisors. As each rates their advisor they become tagged to that advisor, and are exposed to that advisor group discussion. It takes one of the users to bring up the discussion of 12b-1 fees, or anything else they have learned through experienced wisdom. Through these discussions they can together determine if the advisor disclosed the entire fee, or just portions of the entire fee.

"Did the advisor disclose the entire fee for a wrap account (total fund expenses plus wrap fee) or did he essentially lie and just disclose the wrap fee leaving out the total fund expense because he wanted to capture the business.

"The result? Mission accomplished! The advisor has now been exposed to every client that he services who participates as a user of financialjoe.com, as well as every potential client who was thinking about hiring him. This is a permanent record that cannot be expunged by the NASD or any other regulatory who settles financially without admitting guilt.

"The final result is permanently weeding out these types of 'advisors' who conduct unethical behavior. But, this cannot be accomplished without participation! So, in knowing this, why would we structure questions that we know will alienate the average investor?

"The comment also states, 'None knew what their bill for financial costs came to, or the effect of those costs over time. They had all been manipulated into trusting their 'advisor"...blindly.'

"I can assure you through personal experience in explaining fees to clients that there are those clients who, after breaking down the fees to them, say, "I really don't care about the different types of fees, just tell me the total fund expense". I also know of RIA's (Registered Investment Advisors) who tell their clients that their management fee is 1%, but fail to disclose to their client the additional mutual fund expenses held in a separate account.

"As for the questions being 'superficial' that is simply incorrect and needs no further explanation other than the aforementioned.

"The financial industry encompasses more investment vehicles than just mutual funds. The commenter, 'Caution!!', submits the BCT study, but fails to attach the entire package. Yes, the BTC study that Morningstar.com published has a lot of great info, but as Morningstar.com says themselves:

"I can't think of the findings for any study that apply to every single financial advisor in America.

"The study is not perfect. It is unfortunate that the authors use the word 'broker' in their landmark study to apply to almost all financial advisors. Their use of the word 'broker' does not just encompass Series 7 licensed reps who are paid commissions and loads. It truly applies to almost all financial advisors who sell mutual funds. If you hold a Series 7 or Series 65 license, if you are a registered rep, RIA or IAR, if you work for a broker-dealer, major brokerage firm, wire house, or if you are an insurance agent with a Series 7 or Series 65 license, the BCT study may very well have analyzed your transactions (both buy and sell transactions) during the years of the study. Unless you work for a fund supermarket on a salary, your transactions were probably analyzed in the BCT study.

"In the study, virtually everyone selling mutual funds (even RIAs and IARs) are referred to as "brokers"-even if you don't have a Series 7 license.

"Why are these findings so scary? The BCT study implies that about 50% of all FAs produced returns of less than 2.924% per year.
When you factor in taxes and inflation, the clients of all of these "advisors" lost spending power and thus literally became poorer each year. This gives even more credence to the Wall Street Journal's Jonathan Clements' warning of many years that people would be better off if they avoided financial advisors.
I disagree-if only for the reason that skilled financial advisors provide many valuable services besides investment management-but that is the topic for another article.

"The findings of the BCT study seem to apply most directly to advisors who have been selling mutual funds with a 5.75% load, a 3% or some other relatively high load or a front-end, back-end or level load. Even if the fund is a so-called "high-performance fund," with all these fees on top of the human tendency to buy high and sell low, advisors' returns may be much lower than most FAs ever suspected".

"The BCT study found that it is the combination of high-cost mutual funds and advisor behavior that lead to such poor returns. Thus, it is conceivable that even if an advisor uses super-low cost index funds, he or she could significantly under-perform the indexes simply due to buying when prices are high (and everyone is exuberant about the market) and selling when prices are low (and many people are scared).

"Conversely, it is possible that some advisors using high-cost funds could deliver outstanding performance by buying these funds when the prices are low (and when such funds are unpopular) and then selling them when prices are high (and everyone else wants to buy them). This is not what the BCT study found-but it is possible that a few advisors in America could be delivering such performance.
The above advisors might somehow be able to overcome the performance hindering effects of high-cost funds through their mastery of behavioral finance".

"I will finalize my response with this. No system is perfect, but financialjoe.com will improve as technology advances, and as we find new ways to enhance the services we provide.

"I can assure you one thing will be accomplished. Investors will become wiser, poor advisors will be weeded out, and nothing will have a greater impact on Wall Street than the community of investors who came at them through financialjoe.com!"

New ventures that combine social networking and personal finance are starting to to take off, and the latest local example is financialjoe.com.

After spending 10 years in the financial industry, Shawn Tierney was unsatisfied with the quality of information people have about their investment advisors. As a former insider, he should know. Tierney worked as a financial planner for Morgan Stanley and Bank of America.

"An advisor can get away with not servicing his clients, making poor recommendations, or never calling the client again once he makes the commission," Tierney said. "This is because no one else will ever know."

Tierney, along with his brother James Tierney and former Microsoft employees Richard Gerschwiler and John Pezzanite, started financialjoe.com as a place for people to rate their advisors, find people with the same advisor and share information about financial issues. The site launched just two weeks ago.

Users can identify themselves with tags to their advisor, joining online public forums with that advisor and other clients. Clients' names and emails are kept confidential.

Today, the forums had information about regulatory actions against Ameriprise, student loan woes and a conversation about mutual funds. Users get an email message every time a new rating is posted on their advisor.

The site can help investment firms, too, Tierney says, by providing feedback on their advisors, helping them improve customer satisfaction and avoid losing clients.

Avvo offers a similar service but for rating attorneys. "Avvo's great," said Tierney, but people are going to need financial advice much more often than they'll need a good lawyer.

What do Chinese stocks and Apple have in common? They're part of a parallel universe. While Wall Street suffered one of the biggest plunges of the year today, the Shanghai Composite Index hit an all-time record high. The market's rebound has driven the Industrial and Commercial Bank of China past Citigroup and into the top spot as the world's largest bank by market capitalization.

Two Seattle area organizations announced funds today aimed at expanding the reach of financial services for the poor, while providing attractive returns for wealthy investors.

The Unitus Equity Fund closed today with $23.4 million in capital, making it the largest global equity fund in the microfinance industry fully funded with private capital. The investors are Omidyar Network, Abacus Wealth Partners and Kensington Investments.

Unitus has a unique structure in that it operates both a for-profit equity fund a non-profit grant-making arm.

Ten percent of the fund's profit will go into the non-profit arm of Unitus for grant making. Unitus provides grants to microfinance institutions that offer small loans to the working poor in Asia and Latin America.

The concept of microcredit was pioneered by Nobel Prize winning economist Muhammad Yunus. But organizations like Unitus and Omidyar Network take the concept much further by bringing in commercial capital and large investors to greatly increase the amount of money available for lending.

Seattle-based Global Partnerships today launched an $8.5 million investment fund that combines donations with private capital. Individuals donated $255,000, while a group of socially motivated investors contributed $8.2 million. The fund will be used to expand Global Partnerships' funding to 20 microfinance institutions in six countries throughout Latin America.

Sometimes things get a little hectic around here, and things that would normally be stories, end up being briefs. Tuesday -- for today's newspaper -- was one of those days. So, I'd like to point three things in today's paper. They can all be found here (If you were to look for it yourself, it's a link that's nearly halfway down the business section page, indicated by the tag "Business Digest."

1. Brier Dudley and I blogged about this yesterday, but Opsware, a company co-founded by a founder of Netscape, purchased iConclude for about $60 million in cash and stock.

2. Microsoft's Jeff Raikes is set to announce today that the company is releasing a new version of its Office Communications Server at VoiceCon Spring 2007.

The new version of is pretty interesting, and expands the 2005 release significantly. I talked with Eric Swift, Microsoft's senior director of product management in the Unified Communications Group, about it Tuesday, and he said the big feature will enable users to be able to click to call, instant message or start a Web conference from within Microsoft Office documents or Outlook.

Because of these enhanced abilities, Microsoft forecasts that within three years, the cost of rolling out VoIP will be cut in half because of software implementations. And, by then, it expects 100 million people, or twice the number of current business VoIP users, to initiate calls from Microsoft applications.

The public beta of Office Communications Server 2007 will start at the end of March, and general availability is expected by this summer.

3. Yahoo! announced today that its mobile application called Yahoo! Go for Mobile 2.0 will now be available on Windows Mobile devices.

Yahoo! Go for Mobile includes oneSearch, which allows users to surf the Internet and also access maps, news, photo sharing and Yahoo! e-mail.

In addition, Yahoo! said it has formed a strategic partnership to pre-load and distribute Yahoo! mobile applications on millions of HTC devices. HTC, a Taiwan company with U.S. headquarters in Bellevue, is one of the largest distributors of Windows Mobile devices.

I think this is yet more evidence of how Microsoft is willing to work with other companies on its mobile initiatives. Steve Ballmer even said so at 3GSM two years ago; Microsoft is in mobile to partner, not dominate, he said. He doesn't want anyone -- a carirer or handset manufacturer -- to feel that they have to buy Microsoft's entire package.

If HTC, which is super reliant upon Microsoft, feels this way, it has to be true.

The other recent example was when Palm launched the new 750w. Instead of integrating MSN as the main search engine, it chose to go with Google, a decision that was fully supported by Microsoft, Palm said.

Well, some are. But the list of the top 15 donors of 2006 includes only one person from the world of technology -- and an unlikely one -- Oracle CEO Larry Ellison.

Warren Buffett's record $31 billion donation to the Bill & Melinda Gates Foundation enormously expanded the pool of charitable giving in the U.S. last year. The top 15 charitable gifts totaled $35 billion in 2006, this story points out. Last year that figure was only $2 billion.

Besides Buffett, more people donated amounts exceeding $100 million than ever before. The top donors made their fortunes in real estate and financial services.

As for Ellison, who has a reputation for stinginess despite his $16 billion estimated net worth, the donation went to his Ellison Medical Foundation, not to, ah, Harvard.

Microvision said today it's going forward with a public offering of 3,317,567 shares of its common stock at $2.39 per share. The company is expecting to raise $7.9 million.

It's a make-or-break time for the Redmond company, which creates imaging and display technology. It's losing about $7 million a quarter and had just $14.6 million left at the end of September.

Microvision signed a deal with an Asian manufacturer to produce a new miniature laser projector called PicoP, which it plans to demonstrate at the Consumer Electronics Show in January. Embedded inside a mobile device, the PicoP is designed to enlarge images from the device and project them onto another surface a few feet away.

Supercomputer maker Cray is planning to sell up to $80 million in stock, plus up to $12 million for its underwriters. In a regulatory filing Friday, the Seattle company said it will use the funds raised from the offering for general corporate purposes, product development and capital expenditures.

At the stock's current price, $10.83, the company would have to sell about 7.4 million shares to raise $80 million, plus 1.1 million to cover over-allotments for underwriters, including Thomas Weisel Partners and Needham & Company.

Harvey Baraban views the ups and downs of the stock market with the cool detachment of someone who has been a broker for more than 30 years. Yet ask him what he thinks about the U.S. economy and he replies, "I'm scared."

For one thing, the economy has never before been so heavily influenced by events in other parts of the world, such as the military coup in Thailand that roiled global markets. Technology allows stock prices to change in an instant.

It is the steady erosion of wealth in the middle class that is dampening the American dream, he said. Coming from a die-hard capitalist, what he said is sobering:

"We're in that process now in America where greed is more and more important. We see the total value of the upper class is huge compared to the upper class 10 years ago. Take the top 5 percent of all Americans in terms of net worth compared with the same percent 10 years ago. Nothing has grown as dramatically as the net worth of that 5 percent. The other classes have shown very little growth. A society can't exist forever with that happening. I'm a big capitalist, but I'm nervous because it's out of control."

So what's his solution for the other 95 percent? Learn as much as you can about smart investing, he said.

The era of mutual funds is over, and ETFs or exchange traded funds have become dominant, he said. ETFs are index funds that represent an entire industry. There are about 250 ETFs on the market now, so investors should get to know how they work, he said.

He also predicts that interest rates will remain flat, and the time to invest in money market accounts is over. Instead, he recommends treasury notes bought on auction.

Even with recent softening in the housing market, Baraban concludes, "real estate is your best investment going forward."

Google seems to be taking its philanthropic efforts in an interesting direction. This story today reveals that Google.org will be a for-profit venture, and one of its first projects will fund work on a fuel-efficient car engine.

At first glance, the effort seems a bit haphazard, and certainly not very Warren Buffett-like. Besides developing the plug-in hybrid car engine, Google wants to fund its own work on water in Africa, have its own microfinance charity, do its own education project.

Google.org's Executive Director Larry Brilliant, both a physician and a former CEO, works with company co-founders Larry Page and Sergey Brin to "define the mission and strategic goals of Google's philanthropy."

The for-profit status requires Google.org to pay taxes but also gives it more flexibility to fund start-up companies and other projects as an investor, Brilliant said.

The trend is for philanthropic organizations to act much more like a business, being more entrepreneurial, setting goals and measuring results. Google.org takes that notion to a new level.

We already know F5 Networks executives have been well compensated by stock options. Turns out the special committee formed to investigate its questionable stock option practices will be compensated well, too.

Each member will be paid $750 for each meeting attended in person or by phone, according to a recent F5 filing with the Securities and Exchange Commission. That's in addition to fees paid to the directors for sitting on the board and for attending board meetings or meetings of board committees.

Last month F5 received a warning of potential delisting from Nasdaq because the company failed to file its third quarter earnings report on time. In July F5 said it would restate earnings for the past five years as a result of issues with past stock option grants. It identified at least one instance of improperly timed options.

Stepping up its efforts in the area of microfinance, or financial services for the poor, the Gates Foundation today said it has awarded a three-year grant to the Grameen Foundation. The $1.5 million grant is the third largest the Grameen Foundation has received toward its goal of reaching 5 million new families and making sure at least half of them can rise above poverty permanently within five years.

The Grameen Foundation grew out of the Grameen Bank of Bangladesh, started by economics professor Muhammad Yunus to offer tiny loans to poor women to expand their businesses. It operates in 22 countries and has a technology center in Seattle.

The first payment of Warren Buffett's estimated $31 billion gift to the Bill & Melinda Gates Foundation went to the foundation today in the form of 500,000 Class B shares of Buffett's company, Berkshire Hathaway.

Buffett pledged to give 5 percent of the total gift each year. That's 500,000 shares down and 9,500,000 more to go. The shares are worth $3,208 each at today's closing price, for a total of $1.6 billion. Buffett requires the full value of his gift to be spent the year after it's received, starting in 2009.

Until then the money is managed through Cascade Investments, the private Kirkland firm that handles the Gateses' investments. Lest some readers get the impression that the Gates Foundation is suddenly funding media companies in its mission to save the world, Cascade's investments run the gamut from oil, silver, solid waste and ethanol to the Canadian National Railway.

Why have they failed to tilt at the scores of companies much larger than HCA or NTL [a European cable group that could be on the block for $20 billion] that have far less efficient balance sheets, bigger cash flows and a crying need for focus? Consider Microsoft, which has a balance sheet so inefficient that it would make a private equity investor weep. There was not an iota of debt in the thing at the last year-end. Worse, this mature software giant was sitting on cash and investments of $34.1bn -- more than the value of the total HCA deal.

Daniel Primack, the respected private equity analyst and editor of PE Week Wire (which alerted us to the FT story), wrote today that a leveraged buyout of Microsoft is an "inane suggestion."

Primack, who gave his thoughts this morning on CNBC, broke it down like this: Leveraged buyout firms don't have enough money. Bankers won't back the deal. It would hurt fundraising for the firms.

The last point is particularly interesting here. Primack and the FT noted that institutional investors are pushing more money into private equity funds. The state of Washington, for example, has $1.5 billion in the most-recent Kohlberg Kravis Roberts fund, which was one of the buyers of HCA.

Wrote Primack:

So imagine if KKR suddenly helped buy Microsoft and -- as the FT suggests -- lays off lots of workers, sells off/shuts down a few divisions and ignores the rest because it's already gotten paid via dividend recaps? No elected official in Washington would ever again be able to justify an investment in KKR, nor any other firm that helped strip jobs from one of the state's largest private employers.

Buyouts by private equity funds are proliferating with huge deals such as the $23 billion sale of hospital operator HCA. But at a Seattle corporate-finance conference Thursday morning there was a distinct nervousness about the sector's "irrational exuberance."

"There's a lot of deal flow, but there's a lot of insanity," said John Beauclair of L.A.-based buyout fund Sun Capital Partners. "I feel like a lot of people are putting band-aids on bullet wounds."

Massive inflows of capital, increased levels of debt financing, and a slowdown in corporate earnings could combine to burst the buyout world's bubble, according to Beauclair and other representatives of small and midsize private-equity funds at the Northwest Growth Financing Conference.

Michael Nibarger, of Seattle-based Evergreen Pacific Partners, said competition among cash-flush buyout funds is driving up the price-to-earnings multiples at which private companies are being sold, while corporate earnings themselves are also high.

"You take a high number and multiply it by another high number, and you get a really high number. And that's troubling," he said. "I think there's a strong case that the multiples we're seeing now are not sustainable."

The reason there's been such a rush of investment capital into buyout funds, said Mark Morris of Blue Point Capital Partners, is that potential 20 to 30 percent returns look appealing when the stock market is yielding 5 percent.

But all the inflow is causing a "capital overhang" as funds look to deploy their money on schedule, said Scott Svenson of The Sienna Group in Seattle. The "irrational exuberance" has big funds looking even at the smaller companies he deals with, he said, because "there is a lot of capital, and there is a clock ticking."

Needless to say, panelists were more upbeat about their own firms' prospects. For one thing, they are flying much closer to the ground than the stratospheric deals that are making the headlines.

So CDC Corp's hot pursuit of Onyx is officially over. The Hong Kong-based company said this morning that it has withdrawn its offer to buy the Bellevue CRM software vendor for $5 a share. Onyx said it will go through with its deal to be acquired by M2M Holdings of Indiana for $4.80 a share, or about $92 million, pending approval by shareholders.

CDC and Onyx never really hit it off, feuding since their first contact, or you might say lack of contact, last year.

F5 Networks will restate its financial results from 2001 through the first two quarters of 2006 in light of an investigation into its stock options compensation practices, the company disclosed this afternoon.

F5 said financial statements for periods starting Oct. 1, 2000, "should no longer be relied upon." F5, one of the companies named in a federal investigation into the timing of stock-option grants, has received inquiries from the U.S. attorney in New York and the Securities and Exchange Commission (SEC) seeking details on how they grant stock options to executives. F5 is also facing three shareholder lawsuits alleging its top executives and directors defrauded the company and its shareholders by receiving millions of improperly backdated stock options.

The company also said a special committee of F5 board members would not complete its review in time to publish financial statements for the third quarter, ended June 30, by the SEC deadline of Aug. 14.

3. The iPod accounts for more than 75 percent of the U.S. market for digital music players. The iTunes Music Store held an 85 percent share of the market for legally purchased and downloaded music in the U.S.

5. Apple would not give a firm answer as to whether Boot Camp was actually getting people to switch over from Windows. The programs allows Windows and Windows-based programs to be run on a Mac. Said Chief Operating Officer Timothy Cook:

The number of downloads that we have had are significant, and the customer feedback that we've had on Boot Camp is very, very good. It's clear that for a Windows user that considers switching to a Mac that it makes it even more appealing to them to switch.